E2 – Enterprise Management 25 May 2010 - Tuesday Afternoon Session Instructions to candidates You are allowed three hours to answer this question paper. You are allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you are not allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. You are strongly advised to carefully read all the question requirements before attempting the question concerned (that is all parts and/or subquestions). ALL answers must be written in the answer book. Answers or notes written on the question paper will not be submitted for marking. ALL QUESTIONS ARE COMPULSORY. Section A comprises 5 questions and is on pages 2 to 5. Section B comprises 2 questions and is on pages 6 and 7. The list of verbs as published in the syllabus is given for reference on page 11. Write your candidate number, the paper number and the examination subject title in the spaces provided on the front of the examination answer book. Also write your contact ID and name in the space provided in the right hand margin and seal to close. Tick the appropriate boxes on the front of the answer book to indicate which questions you have answered.
E2 – Enterprise Management
© The Chartered Institute of Management Accountants 2010
SECTION A – 50 MARKS [the indicative time for answering this section is 90 minutes] ANSWER ALL FIVE QUESTIONS IN THIS SECTION Question One SM is a consultant who has been asked to work with FX Company, a family owned business, which produces ‘home-made’ ice cream. Her brief is to undertake an assessment of the company’s competitive position. As part of her review she is gathering information from various areas of the business. She has asked the Sales and Marketing Director to provide her with: an overview of the company’s competitors; information on whether market growth is high or low; and what FX’s market share is. She is surprised by his response that the company does not undertake any competitor analysis and that he has no idea of its market share.
Explain why FX Company should undertake competitor analysis. (4 marks)
Discuss why it is important for FX Company to understand the concepts of high/low market growth and market share when undertaking competitor analysis. (6 marks) (Total for Question One = 10 marks)
Section A continues on the opposite page
Question Two CT established her business, KCC, specialising in making handmade cakes, six years ago. Initially CT worked from her home, developing new recipes and cake designs. The business thrived on the creative talents of CT and her staff. In fact, the business became more successful than CT could have hoped for with a number of upmarket supermarkets now stocking her products. Six years on, CT is reflecting on her success. She does feel that things have changed significantly since the early days when her business was run from her home kitchen. To satisfy increasing demand, three years ago she bought a factory for the production of her cakes, and in the last year she has opened five shops to sell the companyâ€™s products. KCC currently employs over 450 staff and the company has significantly changed compared to when it was first established. It now has a formal functional structure and the culture has more of the feel of a large bureaucratic organisation. CT feels that she has lost the passion and enthusiasm she once had for her business and feels that far too much of her time is spent on management issues rather than creating designs for cakes. She has a senior management team made up of the managers looking after different functional areas of the business. They make decisions about the running of the business, but seem to be focused on achieving efficiencies, control and bottom line performance, and have little interest in the creative side of the business. CT used to be on first name terms with her staff, but this is no longer the case. She was particularly saddened when she overheard an employee comment that he just felt he was a robot on a production line rather than a craft worker and that his ideas for new cake designs do not get heard.
Required: Distinguish between the characteristics of KCCâ€™s culture when it was first set up and the culture the company is likely to have now. (Total for Question Two = 10 marks)
Section A continues over the page
TURN OVER May 2010
Question Three V has just left her job as a website designer for a large systems design company and is about to start up her own website design business. She will be renting an office which needs to be prepared, and also needs to procure all the necessary equipment before the business can commence operating. She intends to open her business in 12 weeks’ time. In her previous role, she often encountered critical path analysis when she was involved in large design projects and she considers that this technique may also be useful to help her to plan the setting up of the new business. V has devised a list of activities shown below that must be completed before the new business can commence. When drawing up this list she was aware that there was a degree of uncertainty in the timescales for some of the activities. She is concerned that if these uncertainties are not considered at this stage then she may not hit the deadline of opening her new business in 12 weeks’ time. (Note: there is no slack shown). Activity
A B C D E F G H
A A A B,C D,E F G
Find rental office Procure equipment Prepare office Recruit staff (2 people) Delivery and installation of equipment Train staff Design tests on web design system Test web design system
Time (Weeks) 2 1 3 4 2 2 1 1
Using the above information, construct a network diagram, clearly identifying the critical path, for setting up V’s business. (4 marks)
Explain to V the difference between ‘contingency/scenario plans’ and ‘buffering’ in the context of helping V plan for the uncertainties in setting up the business. (6 marks) (Total for Question Three = 10 marks)
Section A continues on the opposite page
Question Four PW has been asked by her local management accountantsâ€™ forum to present a paper at the annual conference on the subject of social responsibility. She has been asked to do this as her company has recently won a national award for its socially responsible initiatives including its success in recycling methods, community based projects and reducing its carbon footprint. PW has decided that her presentation should start by setting out what is meant by the concept of social responsibility since she feels there are often misconceptions surrounding the term. She also wants to emphasise through her presentation the key benefits that companies can gain from developing strategies which are socially responsible. PW is aware that there will be some cynics in the audience who view socially responsible business driven strategies as unrealistic, that they conflict with the achievement of healthy profits and detract from creating shareholder value.
Required: Discuss the points that PW should include in her presentation on social responsibility. (Total for Question Four = 10 marks)
Required: Explain why it is important that the strategies of a strategic business unit (SBU) link to both the overall corporate strategy of a company and to the companyâ€™s functional strategies. (Total for Question Five = 10 marks)
(Total for Section A = 50 marks)
End of Section A Section B starts on the next page
TURN OVER May 2010
SECTION B – 50 MARKS [the indicative time for answering this section is 90 minutes] ANSWER BOTH QUESTIONS FROM THIS SECTION – 25 MARKS EACH
Question Six COL is a private college offering online tuition and qualifications to candidates all over the world. The Board of Directors of COL has decided to upgrade its computer system in order to enable COL to offer faster, more flexible delivery of courses and examination materials. It feels that this is necessary due to increasing competition in the delivery of online tuition and qualifications from both private and public colleges throughout the world. The Board of Directors and senior managers of COL have spent several months identifying the objectives for the proposed new system and identifying and discussing a range of project proposals. They have identified a clear requirement for the new online system but recognise that they do not possess the internal expertise they need to undertake such a project. COL has contracted a local systems development company, SYS, to carry out the project. A project manager, D, has been assigned from SYS to lead the COL project. He will be responsible for all of the key stages of the project management process, beginning with the project plan. He will also be responsible for leading the project team, which will be made up of mainly SYS designers and also a number of IT staff and users from COL. He is also responsible for communication of the project’s progress and events to Mrs Y, the senior IT manager at COL. COL has made it clear that no extra money will be available than that presented in the original budget of $3 million and that any cost overruns will be borne by the contracting company. It has also set a deadline for final delivery of the system of 12 months. Again, there is no flexibility on this deadline. One of the main enhancements to the updated system required by COL is the security of candidates’ details. Unauthorised access to these details or candidates’ results is the greatest outcome risk to the new system. Mrs Y has insisted that staff from COL should play an active role in the systems development project and that communications between COL and SYS should be a key feature of the project management process.
Construct an outline project plan for the upgrade of COL’s online system to be presented by D, the project manager, to the key stakeholders of the project. (15 marks)
Describe the main skills required of the project manager, D, to lead the project team and create customer confidence. (10 marks) (Total for Question Six = 25 marks)
Section B continues on the opposite page
Question Seven T4M is a mobile phone network provider, with its main headquarters based in B country. Whilst there has been significant industry growth in the last decade, more recently there are signs that this growth has begun to level off. At the same time, competition is intensifying. The Board of T4M is preparing to take on the strategic challenges of the changing operating environment. As well as assessing the external environment, it has started a major review of its internal capability, with a particular focus on examining how efficiency gains can be achieved across the various business functions. F, the Finance Director, is deliberating on how he can gain efficiency in his department. His initial assessment has identified a number of transaction activities that he feels could be outsourced, such as the work undertaken by the customer bill payment team, including some aspects of customer service on bill queries and payroll. F is very enthusiastic about this and his thinking has been informed by the fact that he was only recently approached by G2O, a company specialising in this type of service, based in H Country. If the outsourcing strategy goes ahead, along with other efficiencies the Finance Director has planned, then this would mean a substantial reduction in headcount within the Finance Department, with predicted job losses of around 300 staff. The trade union has already heard about the proposal and the possibility of redundancies. It has made it clear that it will put up a fight against redundancies, on behalf of its members, to keep jobs in T4M. F will need good negotiation skills since it is likely that he will be involved in a number of negotiation scenarios if the outsourcing strategy is implemented.
Explain the benefits and drawbacks associated with T4Mâ€™s proposal to outsource some of the work currently undertaken in the Finance Department. (12 marks)
Discuss how F, the Finance Director, should approach negotiations so that they are effective if the outsourcing strategy goes ahead. (13 marks) (Total for Question Seven = 25 marks)
(Total for Section B = 50 marks)
End of Question Paper
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LIST OF VERBS USED IN THE QUESTION REQUIREMENTS A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for each question in this paper. It is important that you answer the question according to the definition of the verb. LEARNING OBJECTIVE 1 KNOWLEDGE What you are expected to know.
2 COMPREHENSION What you are expected to understand.
List State Define
Make a list of Express, fully or clearly, the details of/facts of Give the exact meaning of
Describe Distinguish Explain Identify
Communicate the key features Highlight the differences between Make clear or intelligible/State the meaning purpose Recognise, establish or select after consideration Use an example to describe or explain something
Illustrate 3 APPLICATION How you are expected to apply your knowledge.
Apply Calculate Demonstrate Prepare Reconcile Solve Tabulate
4 ANALYSIS How you are expected to analyse the detail of what you have learned.
Analyse Categorise Compare and contrast
5 EVALUATION How you are expected to use your learning to evaluate, make decisions or recommendations.
Put to practical use Ascertain or reckon mathematically Prove with certainty or to exhibit by practical means Make or get ready for use Make or prove consistent/compatible Find an answer to Arrange in a table
Construct Discuss Interpret Prioritise Produce
Examine in detail the structure of Place into a defined class or division Show the similarities and/or differences between Build up or compile Examine in detail by argument Translate into intelligible or familiar terms Place in order of priority or sequence for action Create or bring into existence
Advise Evaluate Recommend
Counsel, inform or notify Appraise or assess the value of Propose a course of action
Management Level Paper
E2 â€“ Enterprise Management
Tuesday Afternoon Session